Look Out Below: Investor Optimism Gushes in Oil Market

During the past four months, oil prices have jumped to almost $90 a barrel from $70 a barrel.

The rally can be attributed to two things: increasing demand for oil and weakness in the dollar. The dollar fell sharply in September and October and this contributed to the first leg of the oil rally. The second half of the rally can be attributed to improving economic conditions around the world that led to an increasing demand for oil.

Regardless of why, the rally in oil hasn't gone unnoticed. As of last Friday, the large speculators had built the biggest net long position in oil in the last five years. The net longs reached 220,000 contracts last week, according to the Commitment of Traders report.

To put this into perspective, in the summer of 2008 when oil peaked at more than $140 per barrel, the large speculators were long just more than 120,000 contracts. In other words, oil is still $50 below its all-time high, yet there are almost twice as many net long positions being held currently.

During the past four months, oil prices have jumped to almost $90 a barrel from $70 a barrel.
The rally can be attributed to two things: increasing demand for oil and weakness in the dollar.The dollar fell sharply in September and October and this contributed to the first...